The Pros and Cons of Credit Cards

Credit cards are confusing. What is an advantage of using a credit card? Does closing a credit card hurt your credit? What is the benefit of a credit card? And what are the pros and cons of a credit card, anyhow. 

Influencers on the internet tout credit cards for the travel points, while other people absolutely refuse to use them. So, are credit cards good or bad?  

As with most disputed topics, there isn’t an easy answer to this question. The answer depends a lot on who you are, what your goals are and what your financial situation looks like right now. But with a little bit of forethought, you can make a good decision for yourself. 

Here are some pros and cons of having a credit card. 

The Pros of Having a Credit Card 

• Building Credit: Using a credit card will build your credit history. That means that in the future, depending on your credit usage and history, you may be approved for a loan or mortgage for a larger purchase, such as a vehicle or a house. 
• Rewards: Many credit cards offer rewards you can take advantage of, such as airline miles, travel benefits or cash back.
• Managing Your Cash Flow: Credit cards have a grace period of a few weeks each month between when you get your bill and when it’s due. If you pay your bill each month, that means you have about 50 days (your billing cycle + grace period) before you need to pay. This can help you manage cash flow throughout the month.
• A Safety Net: For some people, another advantage that credit cards offer is a level of emergency support. For example, if you have an unexpected car repair bill, you don’t have to have all the cash needed on hand (or deplete your emergency savings) to address the immediate issue. After that is taken care of, you can review your budget and make plans for paying off your credit card.
• Flexibility: In addition to the grace period, you can pay off a credit card over time. It’s not a great idea to carry a balance month to month, since you will have to pay interest on that balance and it can rack up quickly, meaning everything you buy on the card will end up costing you much more in the end. But in emergency situations, credit cards can provide flexibility in getting your finances in order.
• Protecting Your Identity: Most credit cards offer a high level of theft protection. You can dispute charges if your card is stolen, and you aren’t liable for any of those purchases. Because of this level of protection, credit cards offer an advantage for online shopping and, in some cases, for travel.
• Travel Holds: Many hotels or vehicle rental agencies put a hold on your card until you check out, or until the vehicle is returned. When you use a credit card, the hold is just over a portion of your credit. If the hotel or rental agency allows you to use a debit card (some don’t!), the hold freezes money in your account — money you may need as you travel.
• International Currency Transactions: International travelers also may find benefits in having a credit card, as international purchases are automatically converted to the owner’s currency, and many have low or no foreign transaction fees.

Credit Card Cons 

• Overspending Is Easy: One of the biggest cons of having a credit card is the easy access to more money than you have. Overspending is as simple as a swipe, and before long you could be in a large amount of debt.
• High Interest Rates: Credits cards typically have high interest rates (close to 20%). This means that carrying a balance month-to-month results in a high percentage of your payment going toward interest, rather than paying off your debt.
• Annual Fees: Some credit cards include annual fees and long fine print can include some surprises (such as additional fees or rate increases). That’s not the case with every card, so be sure you know what you’re signing up for before you open a card.
• Credit Check: When you open a new credit card, you will experience a short-term hit to your credit.

Here’s the short version: Credit cards can be beneficial if you use them responsibly to access additional support, build credit history and take advantage of reward programs. Pay your card off in full and on time every month. Avoid putting things on the card that you can’t pay off immediately and avoid having too many credit cards. 

If you don’t think you can limit your spending to what you can pay off each month, or you already have a lot of debt, you may want to avoid opening a credit card. 

Protect Your Financial Future 

If you have questions about the best way to manage your money so that you have a strong financial foundation, reach out to Farm Bureau. We can help you prepare for and protect your future.